....Incentives approaches may not always work well in PNG (Filer and Sekhran 1998), but limitations to top-down controls suggest an ongoing role of well–targeted incentives based on regional planning. Incentives measures – broadly interpreted as any economic or legal instruments “designed to encourage beneficial activity” (UNEP 2000) - are seen as essential elements in any country’s development of effective approaches to meeting its obligations under the Biodiversity Convention. IUCN (2000b) links these to the “eco-system approach”, which seeks a balance, at national, regional and local levels, between biodiversity conservation and the use of resources. However, in spite of the theoretical work on incentives and biodiversity (e.g., OECD 1997), there has been concern about the low-level of response by countries to calls by COP for case studies on incentives measures (UNEP 2000). This suggests that much work remains to be done on design and implementation of incentives.
UNEP (2000) outlines steps to implementing incentives programs, including attention to national biodiversity priorities and “valuation studies” to determine potential biodiversity benefits from incentives programs. There appears to be no link yet made between valuations of areas in their regional context and the principle of complementarity – the essence of the biodiversity value of an area in the regional context. The usual economic approaches to incentives (e.g., Young et al. 1996) all would seem to apply to any value inherent to an area, not depending on what is achieved in other areas. Yet the biodiversity value of an area depends on complementarity (Faith et al. 2001a,b), which is context sensitive, suggesting that special context-sensitive regional incentives methods are needed. This is an important, and often unrecognized, special feature of biodiversity. Many of the standard economic mechanisms that apply to area-specific biodiversity values can have a strong regional perspective when they are complementarity based. Theoretical examples describe incentives approaches (Faith 1997) where changing priorities on areas reflect changes in their complementarity values. We explore related environmental levies, subsidies, carbon offsets and biodiversity credits below, and suggest ways they might be useful in PNG.

Environmental levies….Subsidies for small-scale forestry…..

Carbon offsets

The 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change set targets for reductions in emissions of greenhouse gases, and the Kyoto Protocol “mechanisms” include the Clean Development Mechanism, which is linked to carbon offsets strategies. A carbon offset is a payment that leads to a reduction of carbon emissions so as to offset other carbon emissions. Carbon sequestration by forests is one aspect of such offsets and was considered as a benefit in recent proposals in PNG for conversion of areas currently designated for logging to permanent conservation (Hunt and Filer 2000).
Conservation of biodiversity requires resources, including resources from overseas. It would seem to follow then that directing carbon offset funding to areas that could serve not only carbon sequestration but also protection of biodiversity would be an effective use of limited resources. Carbon offsets guidelines indeed call for “collateral benefits” of biodiversity protection. But benefits of carbon offsets sometimes exclude the “option values” of biodiversity simply because they cannot be put into dollar values (e.g., Kremen et al. 2000). Complementarity calculations overcome that problem.
In principle, any of PNG’s areas might be nominated for carbon offsets – either achieving protection of one of the biodiversity priority areas or subsidizing eco-forestry in an area that is not in the priority set. However, we see advantages in approaches (see also Faith et al. 1999) that are integrated over the entire country. These strategies for identifying offsets are based on the links between biodiversity complementarity values, regional planning, and carbon offset funding.

Our current best set of priority areas (Faith et al. 2001b) might be judged as suitable for carbon offsets funding in that they provide carbon sequestration combined with a high level of biodiversity protection. That funding in practice might feed into a larger trust fund for implementing protected status for these areas. One potential barrier to such a strategy is that criteria for permissible carbon offsets programs appear to exclude projects that are not “additional” to other efforts. However, offsets projects in Costa Rica may provide a precedent where areas previously nominated as national parks were apparently deemed appropriate for offsets, as no other funding for actual park establishment had been identified.
One way to strengthen the degree of “additionality” may be to regard those particular areas from the priority set that have high forestry opportunity (Fig. 1a in Faith et al. 2001b) as particularly appropriate for offset funding. Given the realities of land-owner decision-making powers in PNG, logging often will be the land use selected by land owners even when high biodiversity values are present (for discussion see Filer and Sekhran 1998). Offsets funding therefore satisfies the additionality criterion for such areas.
The carbon offset funding tied to those priority areas having high forestry opportunity might be married with the infinite levy discussed above. These funds could provide ongoing compensation to owners. This strategy would avoid the transient biodiversity protection (and transient carbon sequestration) that would be associated with “ransom” payments (referred to above).
Carbon offsets funding may be justified in another way that could also assist the implementation of the biodiversity priority set. Among all sets of areas that achieve the biodiversity target, this one has a larger total area (about 16.8% of the country) in order to minimize conflict with forestry opportunities. A set with smaller total area might well imply greater forgone forestry opportunities. But the larger set does have an additional cost related to the greater amount of compensation and so on for land owners (where total compensation reflects amount of land rather than forestry opportunities). Carbon offsets funding could make up the extra funding needed to implement the strategy that allows for greater net benefits. The amount of funding, reflecting additionality, would be roughly proportional to the extra total protected area needed to implement the net benefits solution.

It may be desirable to initiate a carbon offset, which is additional to the entire protected areas program, if that program is assumed to be already separately funded by a conservation trust fund (however unlikely that would ever be). Targeted areas may still be those that are expected to make biodiversity contributions, but they reflect biodiversity targets greater than those of the current proposed program. Offset funding might be applied to those additional “must-have” areas (Fig. 5 in Faith et al. 2001a) that correspond to the higher 15%-based attributes, together with those (see Figure 2f,g - download PDF using link above), that have a high complementarity value even when the proposed set is assumed protected.
A more extreme view of offsets as essentially additional to other programs is to regard those areas having high forestry opportunity and low biodiversity complementarity as the strong candidates for offsets. In figure 3, black areas have “zero” contribution to biodiversity (in the context of the nominated 10%-level target) if other areas are assumed protected. At the same time, these areas fall into the top two classes for timber volume (Fig. 1a in Faith et al. 2001b). Offset strategies, in response to landowner’s wishes, that exclude logging in these areas (perhaps using the same exclusion mechanisms as for biodiversity priority areas) clearly can be justified as above-and-beyond the priority set programs for biodiversity.
A variation on this approach would expand forest opportunities in the above strategy to include any areas vulnerable to land clearance (see also Pressey 1997). This may be modeled in PNG through PNGRIS information about land use suitabilities.
Under these schemes, there might be an incentive, in the PNG case, for the environment department (OEC) to help achieve true protection of the proposed priority set in order to establish the low complementarity values for these other areas and so open them up to offsets. In a similar vein, PNGFA has an incentive to encourage establishment of formal protection of the proposed biodiversity priority set in order to reduce biodiversity levies in remaining areas attractive for logging.
In summary, the application of carbon offsets to the proposed priority set has appeal in providing “collateral” benefits and may be inexpensive in conjunction with a trust fund. But it may be more difficult to justify with respect to “additionality”. The possibility of biodiversity gains down the track may increase this additionality while maintaining collateral benefits. At the extreme, application to areas highly suitable for logging but not providing biodiversity gains may maximize additionality but without much “collateral” gain beyond that implied by alignment with land owners’ wishes. The Lak experience (see Stuart and Sekhran 1996) in trying to implement a form of carbon swap illustrated how landowners may not wish to forgo other benefits, and may change their minds at any time down the track. That problem may again argue for the top-down levies associated with the nomination of protected areas. A weakness of many of these proposals is that there may be “leakage”; land clearance may happen at a greater pace at alternative locations.
Biodiversity offsets
A biodiversity offset amounts to a payment to support protection of biodiversity in a designated area. Clearly, the calculus of carbon offsets (see also Faith et al. 1999) is relevant also to this problem, with a focus on biodiversity as a principal rather than a collateral benefit. As was the case for environmental levies, the magnitude of the complementarity value of an area determines the payment required (for example, based on complementarity values calculated as in Figure 2). While an environmental levy is a mechanism for providing permission for land uses in that same area, the biodiversity offset payment compensates for permission to use other areas. We noted that the levy payment changes as the complementarity of the area changes. What happens to a biodiversity offset payment for an area? If these offsets are based on ongoing payments (say, year to year), then the payment surely must increase if the complementarity increases. But a danger then is that areas requiring higher payments may be abandoned.
Another, more likely, framework for such biodiversity offsets is that a large one-off offset payment is made, akin to a purchase of the land, for its protection for the foreseeable future. Scenarios where the complementarity of the area increases or decreases then have interesting implications. When the complementarity value goes up (say, because similar areas in the region are cleared for non-protective land uses), the value of the biodiversity protected through the offset payment goes up. That means that the offset credits are higher, and so the area could now attract a larger payment. The offsets may be sold-on for a higher price. As an investment strategy, an area that will show an increase in complementarity is sound, while one showing a decrease is less advantageous. Thus, areas that contain unique biodiversity attributes and/or contain attributes that are under threat elsewhere in the region, point to good biodiversity “futures” investments.
EVALUATION AND IMPROVEMENT OF BIODIVERSITY SURROGATES
Better use of Museum data
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DISCUSSION
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ACKNOWLEDGEMENTS
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REFERENCES

Faith, D. P., 1995b. Commonwealth proposed criteria for national forest conservation reserves: Will a used CAR cause problems down the road? Submission to Commonwealth Government of Australia. CSIRO, Canberra.

Faith, D. P. and Walker, P. A., 1996d. How do indicator groups provide information about the relative biodiversity of different sets of areas?, on hotspots, complementarity and pattern-based approaches. Biodiversity Letters 3:18-25.

Faith, D. P. and Walker, P. A., 1996e. Environmental diversity: on the best-possible use of surrogate data for assessing the relative biodiversity of sets of areas. Biodiversity and Conservation 5: 399-415.

Filer, C. and Sekhran, N., 1998. Loggers, donors and resource owners. Policy that works for forests and people series no. 2: Papua New Guinea. National Research Institute, Port Moresby and International Institute for Environment and Development, London.

Salafsky, N., 1997. Eleven steps for setting up community-based timber harvesting enterprises: an overview of the European Union funded IRECDP experience in the Islands Region, Papua New Guinea. Islands Region Environmental and Community Development Programme. Washington DC, http://bcnet.org/learning/11steps/11STEPSmodi.htm

Sekhran, N., 1997. Biodiversity on a tightrope: Incentives for rainforest conservation in Papua New Guinea Pp. 429-449 in The Political Economy of Forest Management in Papua New Guinea. ed by C. Filer. National Research Institute NRI and International Institute for Environment and Development IIED, Port Moresby, Papua New Guinea.

Figure 2. Low to high levies are indicated by green, brown, blue, red, turquoise. Cutoffs in complementarity values between colours are arbitrary but consistent over all maps.
f) analysis for a 15%-based target, assuming a 0.999 probability of persistence goal for all attributes, with 0.10 current probability of persistence, and must-haves also assigned highest levy
g) analysis for a 15%-based target, assuming a 0.999 probability of persistence goal for all attributes, with 0.10 current probability of persistence and assuming 0.90 probability of persistence for proposed protected set for the 10%-based target. Proposed areas are coloured grey and a levy is not calculated for these in this example.